Bond yields at 6-week low ahead of monetary policy

The 10-year bonds were little changed, with yields at their lowest in six weeks as investors bet the central bank will refrain from raising the benchmark interest rate at a meeting on Friday.

RBI will order lenders to set aside more cash as reserves to cool inflation that quickened to a 13-month high, according to 23 of the 25 analysts surveyed by Bloomberg News. Addressing supply constraints would be “critical for enhancing the effectiveness of any anti-inflationary policy measures,” the central bank said in a report on Thursday, after food prices rose.

The yield on the 6.35% note due January 2020 was at 7.55% as of the 5:30 p.m. close in Mumbai, according to the central bank’s trading system. The price was 91.75 per 100-rupee face amount.

“If the central bank increases only the cash reserve ratio, which is the consensus view, 10-year bond yields may ease between 5 and 7 basis points,” said Arvind Sampath, head of interest-rate trading at Standard Chartered in Mumbai.

An index measuring wholesale food prices increased 17.4% in the week to January 16 from a year earlier, following a 16.81% gain the previous week, government data published on Thursday showed.